No Canada Deal, 35% Tariffs Loom

In a shift that jolted markets this morning, U.S. President Trump said the United States may not reach a negotiated trade deal with Canada, signalling likely unilateral imposition of 35% tariffs on Canadian goods starting August 1. Trump expressed mounting frustration: “We haven’t really had a lot of luck with Canada... I think Canada could be one where there’s just a tariff, not really a negotiation.” He warned that tariffs could rise further if Canada retaliates. PM Mark Carney initially responded to rising tariff threats by underscoring Canada’s continued commitment to negotiations while condemning the proposed tariffs as punitive “against a trusted partner.” President Trump’s remarks come shortly after Trade Minister Dominic LeBlanc acknowledged progress in talks but cautioned that significant work remains to reach a robust deal before the August deadline. The offices of both Trade Minister LeBlanc and Finance Minister Francois-Philipe Champagne have declined public commentary on Friday.

Analysts at RBC Economics noted that while the immediate market reaction reflects anxiety, their overall Canadian economic outlook remains "largely unchanged" under the assumption that these tariffs will primarily apply to non-USMCA compliant goods, which represent a "less meaningful" aggregate share of Canadian exports to the U.S. However, they acknowledge that the "overarching assumption that average tariff rate will remain in the 10% to 15% range this year is broadly holding," indicating a new, higher baseline of trade friction. The unpredictability of Trump's actions continues to be a major headwind for investor confidence and long-term business planning, prompting a sell-off in risk assets.

Diversification & Tariffs: Canada Seeks New Trade Pathways

Amid ongoing trade friction, Canadian exporters have accelerated diversification: U.S. imports fell from 78% to 68% of total goods between May 2024 and May 2025, while exports to global markets, inclusive of UK, EU, Australia, Japan, Indonesia, surged—Gold exports to the UK jumped 473%. Yet experts caution that supply-chain entanglements with the U.S. limit full decoupling, keeping Canada exposed even as it builds resilience. Following Canada’s repeal of its Digital Services Tax on June 29, trade talks resumed—but the persistence of unilateral tariff threats is straining timelines. Canada is prioritizing terms over pace, with leaders warning that achieving a stable long-term economic and security deal by the renewed August 1 trade deadline remains unlikely.

The latest Main Street Quarterly report by the Canadian Federation of Independent Business, released yesterday, paints a grim picture for the Canadian economy, forecasting negative growth for both the second and third quarters of 2025. CFIB's estimates, in partnership with AppEco, suggest a 0.8% contraction in Q2 and a further 0.8% contraction in Q3. This outlook comes despite inflation slowing to 1.8% in Q2, with a slight rise to 1.9% forecasted for Q3. The report highlights a significant nosedive in private investment—which is estimated to fall 13% in Q2—widespread supply chain disruptions, and low business confidence driven by trade uncertainty, directly impacting investment and job growth despite a steady private sector job vacancy rate. This forecast dampens hopes for a quick economic rebound and will weigh heavily on the Bank of Canada's upcoming decision.

New data released this past week indicates a continued slump in homebuilding, particularly in Canada's largest province. CMHC reported that Ontario homebuilding plummeted by 25% in the first half of 2025 compared to 2024, with Toronto seeing a 44% decline in starts. This makes Premier Ford's target of 1.5 million new homes by 2031 increasingly unrealistic and contributes to national housing affordability challenges. Meanwhile, CREA reported that national home sales rose 2.8% month-over-month in June, building on May's gains, largely driven by a 17.3% cumulative rebound in the Greater Toronto Area. However, prices have remained relatively stable, and the overall volume of transactions remains historically low, suggesting that while some pent-up demand is surfacing, market conditions vary significantly and are still grappling with economic uncertainty.

Beyond the immediate economic headlines, the Canadian government is proactively addressing long-term labour market needs. This week, the Honourable Lena Metlege Diab, Minister of Immigration, Refugees and Citizenship, announced a significant investment of over $3.2 billion across more than 520 organizations outside Quebec over the next three years. This substantial funding is specifically aimed at enhancing services that support the economic integration of newcomers, with a strategic focus on filling critical labour shortages in high-demand sectors such as healthcare and skilled trades. Services will be tailored to regional needs, encompassing support for professional licensing, job-specific and general language training, and specialized assistance for French-speaking newcomers, all designed to ensure new Canadians can quickly contribute their skills to strengthen the national workforce and economy. This focus on labour market resilience underscores a strategic response to the challenges posed by the current global economic environment.

Data To Watch

What’s Next for Canada’s Economy? Key Data Releases to Keep an Eye On.

These upcoming indicators could shift market sentiment, alter fiscal strategies, and impact regulatory decisions in real time. Stay ahead with these critical dates:

1. Bank of Canada Policy Announcement — July 30, 2025

With trade turbulence, markets expect rate cuts later in 2025, though the BoC is likely to hold for now. The accompanying Monetary Policy Report will provide vital clues on how the Bank is factoring in the escalating trade risks and their potential to impact inflation and growth.

2. Revised Trump Tariff Deadline — August 1, 2025

The Trump administration's deadline to finalize a trade agreement or unilaterally impose 35% tariffs on Canadian goods is set for August 1. Failure to meet this deadline could result in abrupt implementation of sweeping tariffs across multiple sectors, with major implications for markets, trade policy, and investor sentiment.

Final Thoughts

From the alarming announcement of President Trump's "no negotiation" stance, to the immediate impact on markets and a projected H2 GDP contraction, Canada's financial landscape is undergoing a period of dynamic and critical change. Staying informed, adaptable, and connected is not merely an advantage—it's essential for those looking to not just weather these shifts, but to identify and capitalize on emerging opportunities. Join us next week as we delve deeper into the Bank of Canada's upcoming interest rate decision and its implications for credit markets and economic growth across the country, especially in light of these new trade headwinds.